Answers to questions are to be given only in English except in the case of candidates who have opted for Hindi Medium. If a candidate has not opted for Hindi medium, his/her answers in Hindi will not be valued.

Question No. 1 is compulsory.

Answer any five questions from the remaining six questions.

Working notes should form part of the answer.

Wherever necessary suitable assumptions should be made by the candidates.

Marks

1.

Answer the following questions:

4x5=20

(a)

On 25th April, 2010 Neel Limited obtained a loan from the bank for Rs. 70 lakhs to be utilised as under:

Rs. in lakhs

Construction of factory shed Purchase of Machinery Working Capital Advance for purchase of truck

28 21 14 7

In March 2011, Construction of shed was completed and machinery installed. Delivery of truck was not received. Total interest charged by the bank for the year ending 31st March, 2011 was Rs. 12 lakhs. Show the treatment of interest under Accounting Standard – 16.

(0)

(b)

An equipment having expected useful life of 5 years, is leased for 3 years. Both the cost and the fair value of the equipment are Rs. 6,00,000. The amount will be paid in 3 equal instalments and at the termination of lease, lessor will get back the equipment. The unguaranteed residual value at the end of 3 years is Rs. 60,000. The IRR of the investment is 10%. The present value of annuity factor of Rs. 1 due at the end of 3rd year at 10% IRR is 2.4868. The present value of Rs. 1 due at the end of 3rd year at 10% rate of interest is 0.7513. State with reason whether the lease constitutes finance lease and also compute the unearned finance income.

(0)

(c)

On 1stApril, 2010, A Ltd had outstanding in its books 1,00,000 Debentures of Rs. 100 each, interest @ 12% per annum. The interest on debentures was paid half–yearly on 30thSeptember and 31stMarch of every year. On 31stMay, 2010 the company purchased 30,000 Debentures of its own @ Rs. 98 (ex–interest) per debenture. The company cancelled the debentures so purchased on 31stMarch, 2011. Pass the necessary Journal Entries to record the above transactions for the year ended 31stMarch, 2011.

(0)

(d)

Global Limited has a branch which closes its books of account every year on 31stMarch. This is an independent branch which maintains comprehensive books of account for recording their transactions. You are required to show journal entries in the books of branch on 31stMarch, 2011 to rectify or adjust the following:

(i)

Head Office allocates Rs. 1,35,000 to the branch as head office expenses, which have not yet been recorded by branch.

(ii)

Depreciation of branch fixed assets, whose accounts are kept by head office in its books, not yet recorded in the branch books, Rs. 1,15,000.

(iii)

Branch paid Rs. 1,40,000 as salary to an official from head office on visit to branch and debited the amount to its Salaries Account.

(iv)

Head Office collected Rs. 1,30,000 directly from a branch customer on behalf of the branch, but no intimation was received earlier by the branch. Now the branch learns about it.

(v)

It is learnt that a remittance of Rs. 1,50,000 sent by the branch has not been received by head office till date.

(0)

2.

P, Q, R and S had been carrying on business in partnership sharing profit & losses in the ratio of 4 : 3 : 2 : 1. They decide to dissolve the partnership on the basis of following Balance Sheet as on 30thApril, 2011 :

X Ltd and Y Ltd were carrying on same business independently. The companies agreed to amalgamate on and from 1–4–2011 and formed a new company Z Ltd. to take over the assets and liabilities of the existing companies. The Balance Sheets of two companies as on 31–3–2011 are as follows:

M/s. Access Electricity Company earned a profit of Rs. 75,00,000 (after tax for the year 2010–11) after paying Rs. 2,40,000 @ 12% as debenture interest for the year ended March 31, 2011. The following further information has been extracted from the Books of company.

Show, how the profits have to be dealt with by the company under the provisions of the Electricity Act. Assume the Bank Rate to be 10%

16

(0)

5.

(a)

M/s. AM Enterprise had two departments, Cloth and Readymade Clothes. The Readymade clothes were made by the firm itself out of the cloth supplied by the Cloth Department at its usual selling price. From the following figures, prepare Departmental Trading and Profit & Loss Account for the year ended 31st March, 2011:

In addition to the above, the following information is made available for necessary consideration:

The stock in the Readymade Clothes Department may be considered as consisting of 75% cloth and 25% other expenses. The Cloth Department earned a gross profit at the rate of 15% in 2009–10. General Expenses of the business as a whole amount to Rs. 10,85,000.

8

(0)

(b)

The following particulars are extracted from the records of M/s. Engco Bank Limited for the year ended 31st March, 2011 :

Amount Rs.

Rebate on bills discounted (not due on March 31st, 2010) Discount received Bills Discounted

60,610 6,10,800 24,42,250

An analysis of the bills discounted is as follows:

Amount (Rs.)

Due Date

3,75,000 4,90,000 2,45,000 3,68,000 4,85,000

April 15, 20,11 May 6,2011 June 1,2011 June 20, 2011 July 4, 2011

The rate of discount is 12% per annum. You are required to :

(i)

Calculate rebate on bills discounted as on 31st March, 2011

(ii)

Determine the amount of discount to be credited to the profit and loss account for the year ended 31st March, 2011.

(iii)

Show the necessary Journal Entries in the books of M/s. Engco bank Ltd. as on 31st March, 2011.

8

(0)

6.

(a)

M/s. ABC Limited has gone into liquidation on 25th June, 2011. Certain creditors could not receive payments out of the realization of assets and out of the contributions from A list contributories. The following are the details of certain transfers which took place in the year ended 31st March, 2011 :

All the shares are of Rs. 10 each, Rs. 8 per share paid up. Show the amount to be realized from the persons listed above. Ignore remuneration to liquidator and other expenses.

8

(0)

(b)

From the following information of M/s. Bigfish Marine Insurance Co. Ltd., prepare the Revenue Account as per regulations of IRDA for the year ended 31st March, 2011:

Particulars

Amount (Rs.)

Premiums Received Premium outstanding on March 31, 2011 Premium paid on reinsurance ceded Claims paid Estimated liability in respect of outstanding claims: On April 1, 2010 On March 31,2011 Expenses of management (includes Rs. 45,000 Surveyor’s fee. and Rs.65,000 Legal expenses paid for settlement of claims) Interest and Dividend (Gross) Income tax on the above Profit on sale of investments Commission paid

18,75,000 1,25,000 2,28,000 10,54,000

1,89,000 2,25,000 4,85,000

1,65,250 49,575 46,000 l,94,000

Balance of fund on 1st April, 2010 was Rs. 18,50,000 including Additional reserve of Rs. 1,80,000. Additional reserve has to be maintained at 10% of net premiums for the year.

8

(0)

7.

Answer any four of the following:

4x4=16

(a)

MEC Limited could not recover an amount of Rs. 8 lakhs from a debtor. The company is aware that the debtor is in great financial difficulty. The accounts of the company for the year ended 31–3–2011 were finalized by making a provision @ 25% of the amount due from that debtor. In May 2011, the debtor became bankrupt and nothing is recoverable from him. Do you advise the company to provide for the entire loss of Rs. 8 lakhs in books of account for the year ended 31–3–2011?

(0)

(b)

Sunshine Company Limited imported raw materials worth US Dollars 9,000 on 25th February, 2011, when the exchange rate was Rs. 44 per US Dollar. The transaction was recorded in the books at the above mentioned rate. The payment for the transaction was made on 10th April, 2011, when the exchange rate was Rs. 48 per US Dollar. At the year end 31st March, 2011, the rate of exchange was Rs. 49 per US Dollar.

The Chief Accountant of company passed an entry on 31st March, 2011 adjusting the cost of raw material consumed for the difference between Rs. 48 and Rs. 44 per US Dollar. Discuss whether this treatment is justified as per the provisions of AS–II (Revised)

(0)

(c)

A company has its share capital divided into shares of Rs. 10 each. On 1–4–2010, it granted 5,000 employees stock option at Rs. 50, when the market price was Rs. 140. The options were to be exercised between 1–12–2010 to 28–2–2011. The employees exercised their options for 4,800 shares only; the remaining option lapsed. Pass the necessary Journal Entries for the year ended 31–3–2011, with regard to employee’s stock option.

(0)

(d)

Explain the treatment of Refund of Government Grants as per Accounting Standard–l2

(0)

(e)

What are the qualitative characteristics that improve the usefulness of information provided in the financial statements?